Latest News and Opinion

The geopolitical and market bogeymen of the moment – Kim Jong Un, Vladimir Putin, tariffs, cyber warfare – are riding tall in the saddle.
That’s sparked something of a “flight to safety,” which ignited a bit of an uptick in demand for Treasuries this …

If targeting political extremes generates the most profit, then that’s what these corporations will pursue.As many of you know, oftwominds.com was falsely labeled propaganda by the propaganda operation known as ProporNot back in 201…

This weekend, I’d like to take a slightly nostalgic trip down Memory Lane, into the dark, swirling menacing pool that was the dawn of the Internet. OK, that sentence didn’t end up quite where I meant it to.

When I started my newsletter business in October of 2000, I decided to have a little fun with it on this new thing called the World Wide Web, aka “the internet.” If you, like me, are of a certain age, you remember well that we started every web address with the ubiquitous www.

WSJ: “Ten Years After the Bear Stearns Bailout, Nobody Thinks It Would Happen Again.” Myriad changes to the financial structure have seemingly safeguarded the financial system from another 2008-style crisis. The big Wall Street financial institutions…

It has been 2 months since I last had a chance to respond to reader comments. This seems like a good time to pause and take the opportunity to do so again. Keep them coming!

Today, since I’m in a contrarian mood, I thought I’d focus on ever-so-kindly replying to people who don’t see eye to eye with me…

I really enjoy these exchanges. They get my creative analytical juices flowing, and force me to consider alternative viewpoints which I may not have done initially.

In fact, the more rebuttals I write, the kinder I feel! Which is why I’ve decided to report a special gold opportunity today (continuing our prickly theme with an investment that is the very definition of contrarian right now).

If indeed this inflation hysteria has passed, its peak was surely late January. Even the stock market liquidations that showed up at that time were classified under that narrative. The economy was so good, it was bad; the Fed would be forced by rapid economic acceleration to speed themselves up before that acceleration got out…

In an economy in which wages for 95% of households are stagnant for structural reasons, pushing inflation higher is destabilizing.

In other words, those with fixed incomes that don’t keep pace with inflation will have lost a third of their income after a decade of central bank-engineered inflation.The official policy goal of the Federal Reserve and other central banks is to generate 3% inflation annually. Put another way: the central banks want to lower the purchasing power of their currencies by 33% every decade.

There is a core structural problem with engineering 3% annual inflation. Those whose income doesn’t keep pace are gradually impoverished, while those who can notch gains above 3% gradually garner the lion’s share of the national income and wealth.

As I showed in Why We’re Doomed: Stagnant Wages, wages for the bottom 95% have not kept pace with official inflation (never mind real-world inflation rates for those exposed to real price increases in big-ticket items such as college tuition and healthcare insurance).

Most households are losing ground as their inflation-adjusted (i.e. real) incomes stagnate or decline.

As I’ve discussed in numerous posts, the stagnation of wages is structural, the result of multiple mutually reinforcing dynamics. These include (but are not limited to) globalized wage arbitrage (everyone in tradable sectors is competing with workers around the world); an abundance/ oversupply of labor globally; the digital industrial revolution’s tendency to concentrate rewards in the top tier of workers; the soaring costs of labor overhead (healthcare insurance, etc.) that diverts cash that could have gone to wage increases to cartels, and the dominance of credit-capital over labor.

In an economy in which wages for 95% of households are stagnant for structural reasons, pushing inflation higher is destabilizing. The only possible output of pushing inflation higher while wages for the vast majority are stagnating is increasing wealth-income inequality–precisely what’s happened over the past decade of Federal Reserve policy.

The stagnation of wages isn’t supposed to happen in conventional economics.Once unemployment drops to the 5% range, full employment is supposed to push wages higher as employers are forced to compete for productive workers.

Alas, conventional economics is incapable of grasping the fluid dynamics of labor, automation, capital, globalization and cost structures dominated by monopolies and cartels in the 4th (digital) industrial revolution.

In sector after sector, employers can’t afford to pay more wages as labor overhead costs march ever higher while prices are held down by competition and oversupply. In other sectors, the rigors and supply, demand, stagnant sales and productivity push employers to automate whatever can be automated, and push tasks that were once performed by employees onto customers.

So why are central banks obsessed with pushing inflation higher? The conventional answer is that a debt-fueled economy requires inflation to reduce the debtors’ future obligations by enabling them to pay their debts with constantly inflating currency.

This same dynamic enables the central state to pay its obligations (social security, interest on the national debt, etc.) with “cheaper” currency. After a decade of 3% inflation, a $100 debt is effectively reduced to $67 by the magic of inflation. If wages rise by 3%, the worker who earned $100 at the start of the decade will be earning $133 by the end of the decade, giving the worker 33% more cash to service debts.

The government benefits from inflation in another way: incomes pushed higher by inflation push wage earners into higher tax brackets, and their higher incomes generate higher taxes.

All this wonderfulness of inflation is negated if wages can’t rise in tandem with inflation. In the view of the central banks, deflation (i.e. wages buy more goods and services every year) is anathema, and it’s not hard to understand why.

The private banking sector benefits from inflation as well. The lifeblood of banking profits is transaction and processing fees from issuing new credit. Since inflation enables households to buy more stuff with credit and service more debt, banks benefit immensely.

Deflation, on the other hand, is Kryptonite to bank profits; households earning less every year are more likely to default on existing debt and eschew new debt. As wages stagnate, an increasing percentage of the populace becomes uncreditworthy, i.e. a marginal borrower who isn’t qualified to borrow (and thus spend) more.

Unfortunately for the Fed and other central banks, there is no way they can push wages higher to keep pace with inflation. Short of creating $1 trillion in new currency and sending a check for $10,000 to every household (something central banks aren’t allowed to do), central banks can’t force employers to pay higher wages or force customers to pay higher prices to enterprises.

Pushing inflation higher while wages stagnate can be charitably called insane. Less charitably, it’s evil, as it strips purchasing power and wealth from all whose income isn’t keeping pace with central bank-engineered inflation.

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Cut through the Wall Street spin to get a clear view of the markets and the economy."Get the facts" delivered every day.

Check your inbox for the confirmation email which is sent instantly. If not there, check your SPAM folder and be sure to whitelist the "From: Lee Adler" email address. Your information will *never* be shared or sold to a 3rd party.

Cut through the Wall Street spin to get a clear view of the markets and the economy. "Get the facts," delivered by email.
- Lee Adler

(Optional)

Check your inbox for the confirmation email which is sent instantly. If not there, check your SPAM folder and be sure to whitelist the "From: Lee Adler" email address. Your information will *never* be shared or sold to a 3rd party.